Selling Commercial Insurance in a Hard Market

The nature of insurance is cyclical, and for most of its history, it has gone through soft and hard markets.

It’s a truth that the insurance industry has been able to avoid for a while. Most younger agents under 40 years old have not experienced the hardening market like generations before them. While certain niches will temporarily harden, the market as a whole has been stable for the past couple of decades. 

There are many reasons why the market cycles have become less volatile than in the past, but that doesn’t mean that the market conditions can’t change. Many agents lack the experience they need and have been caught by surprise with the market changes this year.

For the first time in decades, the market began to harden in the first quarter of 2019. Increased geopolitical tensions, social inflation in the US, and Brexit are all possible reasons for the initial hardening of the market, but many did not expect that it would continue. By the time COVID hit, the pandemic brought a further hardening to the market that hasn’t been seen in decades.

For insurance agents, marketing hardening can be a critical time of growth. It brings new opportunities and challenges for business insurance. If you can make the most of it, you’ll be rewarded with a business that is stronger than ever.

We’re going to dive into the hard market: what it is, why it is an important opportunity for agents, and how you can sell commercial insurance in a hard market.

What is a Hard Insurance Market?

First, we need to discuss exactly what it means to have a hard or soft market.

A soft market, like the one we experienced for the past 20 years, is where insurance carriers want to expand their market share. This kind of market is marked by:

• Lower rates

• Attractive policy terms

• Discounted coverage

A soft market means that carriers are more comfortable with taking on risk. They work to attract prospects with the lowest prices and can result in bidding wars.

A hard market in the insurance cycle is more about mitigating risk than attracting any and all clients. Carriers become more choosey, which results in increased rates and higher barriers to getting insured. Some of the hallmarks of a hard market include:

•     Increased premiums

•     Wide exclusions

•     Stricter standards and more stringent underwriting criteria

•     Lower policy limits

•     Narrow policy wordings

There’s less of a desire for growth and more risk management as insurance companies re-evaluate their books of business and how much capacity they want to present in the market. The result of that is your clients will experience rate increases. It also means that some contracts may not be renewed.

Reasons why the market can change 

Catastrophic losses

Natural disasters, such as earthquakes, floods, hurricanes, and wildfires, over the past few years, have compounded losses for insurers. Many carriers choose not to provide insurance in certain areas as a result of natural disasters. 

Claims costs

Settlement verdicts for directors and officers (or D&O) commercial insurance, for example, have been rising steadily over the past few years. Attorneys are more inclined to take securities class action claims to trial than in the past. Trials mean that settlements are far more costly than ever before, and carriers pass these increases onto the clients by raising premiums.

Investment returns

An economic downturn can result in market hardening as well. Carriers use funds from premiums to invest in other markets. When there are reduced interest rates, it negatively impacts their investment income and profitability. It results in an overall reduced appetite for risk for carriers. The market conditions will have a critical impact on insurance.

Underwriting standards

Many carriers struggle to overcome underwriting losses combined with low-interest rates. They become more cautious and restrict classes of businesses as a result.

Reinsurance

Reinsurance is specifically for insurance carriers when there are risks that they don’t want to retain fully. Reinsurance continues to become more expensive, and insurers pass these rates onto their clients.

While the market as a whole has been soft, there are always niches that struggle with firming markets. The trucking industry, for example, has experienced a hard market even when the industry as a whole was soft. Because a number of factors cause a firming market, it’s important to see if the market is affecting commercial insurance specifically.

Benefits of a Hard Market

Insurance agents typically experience the most benefit from a hard market. The high premiums mean more commission and potential income.

A hard market also gives agents a chance to separate from the competition. Those who fail to give their clients a high-quality experience will find them leaving. During a soft market, many of these clients choose to stay with their agents because of low prices. However, during a hard market, the only differentiator is service. It gives you the chance to get out of the race for the bottom of sales and encourages clients to invest in your services.

Downsides of a Hard Market

Keep in mind, though, that with the extra commission comes extra work. Clients will likely be upset with the increase in their premiums, especially if their carrier drops them. Be prepared for a longer conversation with displeased clients and exhibiting grace under pressure.

If your business has a serious weakness, the hard market will exploit it. If you don’t have high retention rates, if your marketing is weak, or if you fail to make the most of your accounts, clients will likely leave. While some businesses thrive during hard markets, others stumble if they haven’t adequately prepared. 

As Warren Buffet said, “Only when the tide goes out, do you discover who’s been swimming naked.” A soft market can cover poor marketing and an insufficient client service strategy for a while, but a firming one will reveal it.

How to Make the Most of a Hard Market

To make sure that your agency doesn’t fall prey to poor tactics in a hard market, make sure that you take advantage of these critical parts of a hard insurance market:

Retention

A hard market reveals bad retention habits. Clients for commercial insurance will be on the lookout for new insurance, because paying for it will be painful. It will cut into their profits, which will make them look elsewhere to get a better deal, or at least, more for their money. 

If you have bad retention habits, it will show. Take this time to improve them. Follow up with clients, see how the current market is affecting their business, and offer to be a resource quarterback for them.

The best time to talk with clients is during a difficult market. Be upfront about the rising costs, so they are not caught by surprise. An increase in their premium will have a large effect on the profitability of their business, so it’s important to acknowledge that and help in any way you can. Let them know that you will be shopping for the best deal for them, and give them advice for lowering their costs, if appropriate. Consider sending a gift thanking them for their loyalty. 

Going the extra mile for your clients with solid communication will keep from any surprises in the long run and increase loyalty.

Account Rounding

A firming market is a time to make sure that your clients have all of their needs met. The increase in natural disasters, plus COVID, will make many business owners aware of how valuable and necessary their insurance is to keep afloat during difficult times. They could see additional expenses as investments, rather than taking away from their profits.

Follow up with all of your clients to make sure they have the complete coverage they need. See how they are handling these difficult times and see how you can help them. Not only will they be more open to purchasing more, but it will also mean higher profits for your business.

Get New clients

Since times are hard, every client will be out shopping for their insurance. This is your chance to scoop clients whose agents are not making a big enough effort.

Marketing techniques that help capture the interest of commercial clients will have a bigger impact than ever. Take your time to meet and follow up with clients. Putting extra effort into client service will have a bigger impact than trying to find the lowest price. In a hard market, the differentiating factor isn’t your cost, but what you have to offer your clients.

How to Sell More in a Hard Market

A hard market is a great opportunity for commercial insurance, but it takes a different mindset than a soft market. The good news is, the more you hone your selling tactics in a firming market, the more they will help when the market fluctuates and softens again. Although you can use many of the same skills for either market, they are more critical in a hard market. It is a great chance to refine your selling techniques and experience even more growth.

Some of the most crucial selling tactics you can apply include:

Educate Your Clients

Although everybody is facing an increase, that does not mean that it is obvious to your clients that their rates will increase as well. The last thing you want is for your clients to find out with their renewal (or possible non-renewal) letter in the mail.

Take some time to contact your clients in advance to make sure they are aware of the changes in the insurance market. Explain how these changes can affect them and their businesses. It’s a critical time to establish trust and credibility with your clients, so anticipate any questions that they may ask to have an answer ready for them. If they do end up asking a question that you’re not sure how to answer, find it, and get back to your client as quickly as possible.

Contacting and educating your clients also gives you a chance to get commitments early and avoid any possible last-minute problems.

Begin the Renewal Process Early (But Be Prepared to Work Last Minute)

Another advantage of getting commitments early is starting the renewal process as quickly as possible. As an additional means of caution, the underwriting process takes much longer in the hard market. The more stringent underwriting criteria require the underwriters to do more work than ever. Many underwriters won’t release quotes until the last minute, so have the information to them early. 

An efficient renewal process is essential to making the maximum amount of sales. The earlier you can start the renewal process, the less stress and more sales you can make. While beginning the renewal process as early as possible helps everything move as efficiently and effectively, don’t be surprised if you still have to work up until the last minute during a hard market. Control what you can to make it as well-organized as possible.

Use This Time (And Extra Earnings) Wisely

Now is the time to use any extra pay to invest in your business. While it might be tempting to use the extra profit to pay yourself, a hard market doesn’t last forever. Investments that you make to grow a stronger business now will help your long term profit, no matter what the market brings.

The longer you can go without increasing your pay, the more your investment in your business will pay off. Take this time to fix any problems in your agency. Pay off debt, hire necessary staff, or invest in quality software.

Any increase you can make to your marketing budget is also a wise investment in your agency. Marketing goes even further in a hard market, and increasing it will help ensure that you reach your target market and continue to grow even when the market softens again.

Develop Persistence with a Sales Cadence

What separates successful salespeople from the ones that fail? Persistence. This is especially true during a hard market when businesses need to be sure that their agent will provide the best service possible. While an increase in marketing will help bring you more qualified prospects, if you fail to follow up, you will miss out on vital sales. 

Research shows that speaking to a prospect once is rarely enough time to make a sale. Most are busy and distracted, so multiple contacts are necessary. Almost 80% of sales take five or more contacts. Yet, most give up after just one attempt.

Qualifying a prospect is a critical part of selling to make sure you are spending your time reaching out to the right people. Once you’ve qualified your potential client, though, initial pushback should not stop you from continuing to reach out and offer help again. Many agents hear common pushback phrases:

• “I’ll think it over.”

• “We have to discuss it first.”

• “I need to look at other options.”

• “We need to go over the budget first.”

•  “The price is too high right now.”

It may take multiple “nos” to get to a yes from a client. Recognizing these phrases will help you push through, and problem-solve for your prospect.

Too often, though, agents run one of two ways: they contact a prospect once and then never again, or they call every day and ruin their chances of a sale by appearing overly-needy. There are even times the same agent can do both techniques to different prospects and end up missing out on both sales for two different reasons.

To combat bad prospecting habits, especially during a firming market, a sales cadence is critical. This is especially useful if you have a difficult time reaching a client, which is common in the commercial business. Their busy schedule usually makes it difficult to get in contact. A sales cadence is a set schedule where you designate certain times where you contact prospects using different mediums at different times of the day.

A sales cadence allows you amply opportunity to get ahold of your prospect and possibly catch them at a time convenient for them. It also ensures that every qualified prospect is contacted enough, but not too much.

An example of a sales cadence can look like this:

• Day 1: Call in the morning

• Day 3: Email in the afternoon

• Day 5: Call in the afternoon

• Day 8: Call in the morning

• Day 11: Email in the morning

• Day 15: Call in the afternoon

No sales cadence is alike. How yours looks depends on your clients, your schedule, and your unique situation. Develop one that can work for your schedule, as well as maximize your ability to meet with your prospects.

Don’t make the mistake of not calling enough and letting prospects fall through the cracks. A set sales cadence for all of your potential clients will help maximize the sales you can make during critical times, such as a hard market.

Concentrate on Value Instead of Price

During a hard market, pricing is more or less set. There’s no way to sell your insurance products based on price because everyone is equally as high. Discuss your superior value and unique benefits instead.

Don’t concentrate on the price until well after you have established the value that you can bring to your potential client. There is only so much of a discount you can make, if at all. Concentrate on what your client can gain with value-added services. When you demonstrate your value, price is the last thing that will come to mind.

Strive to provide solution-based selling in a hard market. Point out how you can create peace of mind and coverage that can protect their business—focus on security and risk, and how your products will minimize their stress. 

Once you have communicated exactly what you have to offer, you can discuss prices.

Overcome Objections

Objections are not the end of your conversation. It’s an opportunity for you to connect with your client and create a more solid proposal. Hearing objections from your potential client will be more common in a hard market. They want to make sure that their investment with you is worth it, so they will continue to test and work each angle to make sure.

It can be difficult to hear a client tell you no, but the last thing you should do is act defensively. Take the time to listen to what the client is saying to understand completely and respond accordingly.

There are different types of sales objections that all require different responses from you. Figure out how you will answer objections beforehand so that you can help ease their mind and make the sale. Objections usually fall under five categories:

Budget

This will be a widespread objection in commercial insurance. Potential clients had a specific budget that was geared towards a soft market. Since lowering your price is not an option, instead, demonstrate the value of your product. 

Authority

There are times where they state they need someone else’s input to make a decision. It’s a great chance to get the other decision-makers in the room. Set up a time when everyone can be there.

Need

This will likely be less of a problem in the modern market, but they may fail to understand why their insurance needs may increase. It is often the result of being uninformed about the situation that they are facing. This is an opportunity for you to describe more in-depth the overarching problem and opportunity that your insurance products can solve.

Timeliness

A potential client may drag their feet because they don’t think it is the right time to make a change. Make it clear that waiting means they will be missing out. Also, clarify whether it’s truly a bad time, and you need to come back later, or if it’s a business problem. If it’s a business problem, show how you can make your client’s life easier, and potentially solve some of the problem (i.e., stress and anxiety).

Value

This is where you can stand out from the competition. When they question how much they get for what they pay, introduce the specific perks that come from getting insurance from you.

After you’ve addressed objections, make sure that it genuinely answers their issues. Don’t try to force a yes from them when they still have doubts. Often, prospects will then just nod along, but the objections will remain after you’ve left. Get honest feedback throughout the process, and don’t be afraid of a no - if you understand what their fear is, you can help them overcome it. 

Develop and Use More than One Close

Your close is a crucial part of your selling technique, but many also find it the most difficult. In a hard market, your closing techniques are critical. Many agents try to avoid closing, but your sales will suffer if you do. One way to combat losing your nerve is to have multiple closes practiced and ready.

There is no one close that will fit every client. Having multiple ready will help you match your close to the situation and prospect. Some examples of successful closes include:

Direct Close

The straight-forward, classic approach of simply asking for the sale. It’s an ideal close for prospects who are in a rush, when a conversation has gone smoothly, or when you need a classic stand-by. 

Take Away Close

The Take Away Close is ideal in a hard market where your clients may be intimidated by the price. It involves taking away one aspect of the deal to help lower the cost for them. Most prospects will be so concerned with what they’re missing out on that they may end up getting the whole package anyways.

Question Close

Influential sales representatives in any industry know how to ask questions. All along, you should be figuring out what your prospect wants and how they are reacting to your pitch by asking intelligent questions. It’s also an effective way to close a sale, especially if the potential client has been quiet and has not raised any objections. It can give you the chance to catch any last objections before you leave.

End the conversation with something like, “Based on what we have discussed, does what I offer meet your needs?” It puts the decision back on the client but also opens up the conversation if they do have objections.

Summary Close

Summarize the points that you agree on with this closing technique. Use the summary close to quickly stress the value and benefits of what you are selling. This is especially useful if you engaged in a long conversation with many points. It’s easy for prospects to lose track of everything discussed during your conversation with them, so a summary close can help them keep the most important points in mind.

Sharp Angles Close

This is another close that is ideally suited for a hard market. Your potential client will often ask for something in addition to making the higher price worth it, such as an extra service. As long as it is something you can offer, reply with “Sure, but if I do that, will you sign today?” It immediately puts the decision back onto the prospect and creates extra incentive to close today.

What close you use depends heavily on how the conversation is going. By rehearsing a number of closes before a meeting, you can be prepared to close in a way that makes your potential clients comfortable with saying yes.

Create a Strong Business in a Hard Market

Many younger agents have not experienced a truly hard market before now and may not be sure about how to approach the situation. With a solid plan in place and practice, a hard market can be an opportunity.

A firming market provides unique challenges and opportunities for growth. For those who know how best to navigate a hard market, they may find that it is a benefit for their business.